(Reuters) - The euro fell broadly on Monday after European policymakers failed to calm escalating worries that Greece will default and that the debt crisis could engulf larger euro zone economies and the region's banks.
The euro was down 1 percent on the day at $1.3642 and 104.90 yen as nervous investors added to bearish bets against the common currency after an unproductive meeting of finance ministers in Poland.
Greek Prime Minister George Papandreou's decision to cancel a visit to the United States to chair an emergency cabinet meeting at home and a regional election defeat for German Chancellor Angela Merkel added to the growing sense of gloom about the single currency.
The EU and IMF have presented Greece with a list of 15 measures it needs to accelerate as a condition for accessing the next tranche of its bailout funds, Greek media said on Monday.[nL5E7KJ0BK]
All eyes will now be on a conference call between Greece and its international lenders at 1600 GMT on Monday. The IMF said Athens must deliver on reforms to qualify for further aid.
Some players said the decision to leave the release of the next tranche of funds -- essential if Athens is to avoid a default -- right down to the wire, will hurt the euro in coming days.
"The weekend meeting of the EU produced nothing decisive and a lack of direction will raise questions about solvency," said Lena Komileva, global head of G10 currencies at Brown Brother Harriman. "We expect the euro to retest the September 12 low of just below $1.35 in coming days."
The euro dipped below its support level near $1.3664, the 61.8 percent retracement of last week's rally to $1.3937 from a seven-month trough of $1.3495. On Monday. It fell as low as $1.3634, with bids cited below $1.3630.
The next Fibonacci support lies near $1.3599, the 76.4 percent retracement of the same rally, with more support at its September 14 intraday low near $1.3590.
Data from the Commodity Futures Trading Commission showed speculators sharply increased their short positions in the euro, pushing the net total position to 54,459 contracts in the week ended September 13 -- the highest level since last June.
At the same time, speculators added to bullish bets on the dollar for the first time since July 2010.
The greenback, which is often preferred at times of financial stress, has been supported by a renewed flight to safety, a jump in stock market volatility and expectations that the Federal Reserve will not resort to another round of quantitative easing.
Euro/dollar implied volatilities rose, particularly given the event risk ahead with a Fed meeting this week and the decline in the spot euro. One-month rose to 15.75 percent from around 14.5 on Friday.
Risk reversals reflected greater downside bias for the euro. The one-month 25-delta risk reversal was at around 3.0 in favor of euro puts, up from 2.6 on Friday.
FED MEETING AHEAD
The dollar rose broadly, edging up against the yen to 76.80 yen and climbing 1 percent versus the Swiss franc to 0.8840. The dollar index was up 0.8 percent at 77.228, not far from its seven-month high of 77.784.
The Fed begins a two-day policy meeting on Tuesday amid talk it will take further monetary easing measures, such as lengthening the maturity of its debt holdings, an option market players refer to as "Operation Twist." [ID:nL3E7KJ06Z]
Although the market sees little chance that the Fed will adopt a fresh asset-buying program this week, any signal that it will expand its balance sheet if data continues to disappoint could provide some support to risk appetite in coming weeks.
On the other hand, Operation Twist could underpin the dollar in the short term, analysts said.
"We are constructive on the dollar in the medium term and it seems increasingly likely that the Fed will resort to extension of maturities rather than its balance sheet," said Chris Walker, currency strategist at UBS.
"In that case, it does look good for the dollar. The dollar index could rise up to 80 in the next two weeks."
Market talk that an Asian sovereign account sold the Australian dollar and the euro also helped push the dollar higher earlier in the session.
Commodity currencies came under pressure as stock markets and financial shares were deep in the red with investors cutting back leveraged trades. The Australian dollar was down 1.3 percent at $1.0231 while the New Zealand dollar was down 0.8 percent at $0.8212.
